ISLAMABAD, Nov 20: Eighteen months after the passage of the 18th Amendment, the federal and provincial governments are still fighting over their shares in more than Rs230 billion worth of financial assets and large numbers of physical assets of various public sector corporations.

The 18th Amendment and the Seventh National Finance Commission award have also given rise to serious regulatory and governance issues and made it difficult to initiate fresh revenue generation measures both at the federal and provincial levels.

These are the main points highlighted in a confidential report of study funded by the Competitive Support Fund — a joint initiative of the finance ministry and USAID — and prepared by a team of experts led by Shahid Javed Burki and comprising Dr Aisha G. Pasha, two former federal secretaries Ahmed Waqar and Shahab Khwaja, Dr Hilton Root, Imran Khan and Mehr Shah.

The team will share the report with chief ministers and the federal finance minister this week.

“The federal and provincial governments differ over the distribution of some financial assets like Workers’ Welfare Fund and Employees’ Old-Age Benefit Institution. The WWF’s financial deposits are estimated at Rs81 billion while the EOBI has assets worth Rs148 billion,” said the report, a copy of which is available with Dawn.

“The distribution of assets owned by autonomous bodies and attached departments of devolved ministries is also proving to be contentious as provinces are demanding the equitable distribution of assets, including that of geographically immovable fixed assets,” it said.

The implementation commission that was set up to facilitate devolution could not fully deliver, given the limited time available to it and the scope of its assignment as it ceased to exist on June 30 this year.

Overall, the budgeted increase in revenue transfers to the provinces due to the NFC Award in relation to the presidential order is Rs222 billion in 2010-11, but total transfers were diluted by about Rs180 billion as a result of lower-than-expected resources generation and 50 per cent increase in salaries of government employees announced by the federal authorities.

The President of Pakistan, Asif Ali Zardari
signing the 7th National Finance Award

The report says that despite percentage increase in provincial shares, the provincial governments contend that the devolved responsibilities should be funded by the federal government with additional revenue commitments. This is based on three points; first the NFC Award preceded the 18th Amendment so it could not have influenced the resource allocation decisions of the NFC because additional functional allocations to provinces had not been decided at that time.

Second, the provinces will not receive as large a portion of additional revenues as was originally claimed by the federal authorities due to shortfalls in federal tax collections. Third, the federal government unilaterally announced a 50 per cent increase in salaries and allowances for government employees in the budget of 2010-11, which will deprive the provinces of a substantial proportion of the revenue gains. “The issue of financing the additional responsibilities devolved to the provinces therefore remains unresolved and is likely to be taken by the CCI going forward.”

The report says that although the NFC Award expanded the basis for a significant sharing of resources with the provincial governments, the 18th Amendment made only modest changes in the allocation of fiscal powers between the two levels of government. “As such, the high dependence of provincial governments on federal transfers is likely to continue in the foreseeable future.”

The experts found that there were indications that the regulatory system will come under stress as a result of devolution in the area of social service delivery. There is already uncertainty with respect to functions of the federal government. For instance, the process of devolution has been put on hold because the decision to devolve the Higher Education Commission has been challenged in the Supreme Court.Similarly, the decision to devolve the ministry of health has raised concerns over international obligations such as commitment to the millennium development goals. “The impact of devolution on the regulatory system of Pakistan has not been fully appreciated. A likely consequence is that in some areas, particularly social service delivery, there may be setbacks as the provinces begin to reflect on their own regulatory requirements and priorities.”

Also a possible impact of increased transfers from the centre could be reduced fiscal effort in terms of own tax revenue generation and collection by the provinces. “A continuation of the imbalance in fiscal responsibility is likely to be damaging for the federal as well as provincial governments in terms of unmet fiscal targets and inadequate resource availability for improved services delivery,” says the report, adding “it is clear that centre’s fiscal position will deteriorate.”